Younger consumers (millennials and Generation Z) of life insurers in Japan are migrating to new sales channels, such as co-registered agents, rather than meeting with tied sales representatives, notes the international professional services firm EY.
In its 2020 Japan Insurance Outlook report, EY says that these customers need to be identified and approached with more enticing products.
In addition, consumers’ needs are shifting away from death protection and toward life protection (medical, income, etc). Thus, life insurers are seeking to quickly develop and launch new products and added-value services to boost revenue.
However, it has been difficult to launch new savings products and other types of offerings in the prevailing unfavourable economic environment, including a lingering low interest rate.
As technology advances and non-insurance competitors (such as other financial services companies) enter the industry, it is more important than ever for life insurers to create ecosystems with InsurTechs. Feeling both cost and competitive pressures, incumbent life insurers are looking to the cloud, artificial intelligence (AI), and other technologies to replace inefficient legacy systems, enhance operational agility, and improve their data and analytics capabilities and infrastructures.
Nearly 90% of Japanese households carry life insurance policies. However, the volume of in-force policies has dropped precipitously since reaching a peak of JPY1.5tn ($13.7bn) in1996. One reason for the drop is that the workforce population hit its peak in 1997 and has been declining ever since.
In addition, the unit price of premium per person has been decreasing due to continuing low interest rates, as well as a low birthrate and increasing longevity.
EY says that the industry must adopt more aggressive cost-saving programmes and increase business efficiency if it is to thrive in the face of an ageing population, low birthrate, and persistent low interest rates.
Inflexible legacy systems are a significant challenge. The core systems that support the business still run on mainframe computers. As a result, insurers have accumulated an enormous number of out-of-date IT assets that are resource- intensive and costly to manage and maintain.
Imperatives for life insurers
The report says that the imperatives for life insurers are:
1 Focus on highly profitable products with current customers and develop new products, value-adding services, and sales channels suited to diverse customer needs (eg, giving advice on health, finance, mental support, ad hoc insurance).
2 Consider how “human plus digital” channels should play in the market and develop targeted models and road maps to maximise customers’ lifetime value.
3 Prepare for a future in which insurance products are available on platforms like Amazon by acquiring, partnering with or creating InsurTech players and platforms to execute key strategies and drive innovation.
4 Embrace AI, the cloud, advanced data analytics, and automation to improve.